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Commodity bond no 4 from Dawnay Day Quantum

Structured product provider Dawnay Day Quantum has created another issue of protected commodities accelerator, a guaranteed equity bond linked to a basket of eight industrial metals and energy-related commodities.

The bond has a five-year term and will provide 180 per cent of the growth in the commodity basket compared with the previous issues participation rate of 200 per cent.

According to Dawnay Day Quantum, direct exposure to commodities is something few investors have within their portfolios they are more likely to gain exposure to this asset class through shares. However, Dawnay Day Quantum believes investors holding stocks such as BP and Shell will not fully benefit from the anticipated growth in the sector over the next few years.

Protected commodities accelerator VI will be linked to an equally weighted portfolio of crude oil, heating oil, natural gas, aluminium, lead, copper, nickel and platinum.. There will be a full capital return at the end of the term regardless of the performance of the underlying investments. The product is also available as an Isa despite the fact that the minimum investment outside this wrapper is 15,000.

To calculate the returns, the Official London Metal Exchange closing cash price per metric tonne will be used in respect of aluminium, nickel, copper and lead. The official closing price per barrel of Brent crude oil, fuel oil and natural gas on the exchange of futures contracts for delivery in the first nearby month will also be used, along with the afternoon fixing for platinum determined by the London Palladium and Platinum Market. Commodity prices are measured at the start of the term and compared with an average over the last week before maturity.

Although the price of commodities such as oil have risen, when inflation is taken into account, the real price is historically low. Demand from China is strong but still has scope to increase, while population growth is also predicted and this could help push commodity prices higher. However, some IFAs may feel these factors are already reflected in commodity prices, which can be volatile in reaction to global events and high volumes of trading on the futures exchange.


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